Boeing offers Air India $500 million for dreamliner delay

Boeing offers Air India $500 million for dreamliner delay

NEW DELHI: US aircraft maker Boeing has offered to pay $500 million to Air India as compensation for the delay in deliveries of new-age B-787 Dreamliner aircraft. The package is more than three times what Boeing was willing to pay earlier, but the civil aviation ministry says it is still inadequate.

“It appears now that Boeing intends to offer half-a-billion dollars as compensation to Air India,” a senior civil aviation ministry official told ET. “But this is too less and we are trying to ensure better compensation.” Boeing India President Dinesh Keskar refused to give details.

” Air India is our valued customer and we will not discuss the issue of compensation in media,” he said. Air India had ordered 27 Dreamliner jets in 2006, which were to be delivered by September 2008. But Boeing says it can hand over the first of these planes only in the quarter beginning July.
AI Claims $1-Billion Loss

Dreamliner is a 250-seater aircraft made of composite materials and is considered very fuel-efficient. The multi-version aircraft has a list price between $140 million and $200 million. Air India says the delay in handing over the jets has caused the airline both opportunity and operational losses amounting to over $1 billion. The official quoted above said the compensation Boeing plans to offer includes $145 million in liquidated damages, which are part of the contract and should not be included in the compensation value.

Liquidated damages on account of delay are usually 0.5% of the total contract value and they are to be paid on a weekly or monthly basis for a specified time as mentioned in the contract.

“Air India is not only eligible for liquidated damages, but also for the loss in revenue it suffered because its expansion plans were impacted due to the long delay,” the official said. Air India says it had planned to fly new routes to Australia and Africa, besides expanding services to the US with the B-787s.

In January 2009, the airline had sought $710 million from Boeing as compensation for the delays in deliveries of B-787s. The carrier raised this figure to $840 million in August last year. The airline argues the compensation is on the grounds of loss of opportunities, business & market share, inability to use more fuel-efficient aircraft, leasing of jets at high cost, and additional interest burden on pre-delivery payments it made for the planes.

Air India, which has a fleet size of 133 aircraft, is under a colossal debt of Rs 40,000 crore and accumulated losses of Rs 13,000 crore. The airline had placed a $15-billion order for 111 aircraft in 2006. Of this, 68 aircraft were to be purchased from Boeing and the remaining from Airbus . Of the Boeing order, 50 aircraft were for Air India’s own fleet and 18 for its low-cost subsidiary Air India Express , which flies on short-haul international routes.

Apart from the 27 B-787 s, the other aircraft include a mix of B-777 s and B-737s. In India, Boeing also has an order from Jet Airways for 10 Dreamliners. Boeing’s order book for the B-787 worldwide currently stands at nearly 900 aircraft.